For those of us who think Dynamic Scoring (DS) is a really irresponsible, fiscally dangerous way for the Congressional Budget Office (CBO) to estimate the impact of changes to the tax code, ditch the politically charged “Voo-Doo Economics” (VDE) argument.
Bi- and Non-Partisan, deep skepticism about DS was around long before “Voo-Doo Economics” became a charming epitaph used by liberals to attack conservative economics. Ditch that language. It’s not strictly applicable to DS and will shut down debate even before it starts.
Some recent coverage of the effort by Paul Ryan and House Congressional Republicans to enshrine the practice of DS, is not especially helpful. It slips into partisan sounding insult mode, though that may not be the Washington Post’s intent.
DS and VDE are (somewhat) related. Both presume that cutting taxes results in people and businesses spending more, creating more economic activity, which, in turn, produces more (new) revenue. There is of course some truth to that. But with lots of caveats, cautions, and qualifications.
The difference between DS and VDE is that VDE refers to a world view, an all encompassing philosophy about macro economics, sometimes called “Supply Side Economics” or referenced (less kindly) as “Trickle Down.” It’s a mine field for partisan rancor. DS is a kissin’ cousin of VDE, SSE and TD, but its not a grand theory of how economies work. Why get into an argument where one side is pushed into a corner to defend Ronald Regan and Jack Kemp?
On the other hand, DS just says: “When you ‘score’ a bill that proposes to change the tax code, (please) take into consideration that it will possibly stimulate the economy and produce some new revenue, so that the cost of the proposed policy is somewhat less than measured by the ‘static’ approach.” The static approach says if you cut the capital gains tax by 10 percent it will result in 10% less capital gains revenue. Static scoring admonishes the frisky economist to KISS, i.e., “keep it simple, stupid!?”
DS is fiscally dangerous, because it creates the most slippery of slopes and vast opportunities for abuse that can lead easily to bad forecasting, then large revenue shortfalls, budget deficits, program cuts, or even tax increases (to plug the holes). See Kansas and Pennsylvania. That’s why the CBO and nearly all states stayed away from DS for so long.
Slick marketers, some with real PhDs in economics, working for leading econometrics and finance software giants (like the REMI modelers), started convincing some analysts and politicians a few years ago that econometric models which perform DS have improved greatly. Yes, they’ve progressed some. But I would no more bet the U.S. or state budgets on them, any more than I would the family farm (in Brooklyn).
If adopted, DS will inevitably be used as a (Letterman) “stupid pet trick” that allows (tempts) politicians to say that tax cuts (or spending increases) magically pay for themselves. Yes, the DS manuever is available to both the tax cutters and spenders. We have enough stupid pet tricks.
If its not yet clear, the intended take away from this note is: If you want to persuade your legislator or governor to stay away from dynamic scoring, there is no need to challenge implacable, ideological world views of the economy. Just stick to basic fiscal prudence.
This post, alas, lacks some nuance and documentation. An earlier post on this blog was better in that regard. Here it is.